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Harji Engineering Works Pvt. Ltd. v. Bharat Heavy Engineering Ltd. & Anr.
Structured Summary of the Opinion (J.D. Kapoor, J.)
Factual and Procedural Background
The contract between Bharat Heavy Engineering Ltd. (BHEL, respondent) and M/s Harji Engineering Works (claimant/petitioner) was executed on 7 January 1987 for erection, testing and commissioning of a 67.5 MW Boiler Unit-I and a 15 MW Electrostatic Precipitator at Rajghat Thermal Power Station, New Delhi. A dispute arose concerning the interpretation of Clause 41.8 of the contract, and an Arbitrator was appointed to interpret that clause.
Clause 41.8 (as recited in the opinion) dealt with the treatment of "equivalent joints" and provided that the equivalent joint calculation may vary between −5% and +10%, with the unit tonnage rate remaining valid for those variations. If variation exceeded those limits, "only the additional payment/recovery will be as per item 2 of rate schedule" and "There will be no other claim from either side." Item 2 set a rate of Rs.125/- per equivalent joint revised to Rs.100/- per joint.
The petitioner claimed entitlement to Rs.22,79,600 (at Rs.100 per joint) because of a claimed reduction of 22,796 weld joints from the original contractual 59,360 weld joints; it was also stated in the opinion that the petitioner executed 33,596 weld joints (paragraph 3). At a later stage the opinion records that, "as per contract joints which were to be welded were 59,360 but in actuality 36,564 number of joints were welded" (paragraph 10). The respondent disputed the petitioner's entitlement and contended that the amount was recoverable from the petitioner because fewer weld joints had been executed than stipulated.
The Arbitrator interpreted Clause 41.8, made findings on the technical assessments (including that BHEL's specified number of weld joints was abnormally high), allowed the petitioner a payment of Rs.8.18 lakhs (and rejected the respondent's counter-claim of Rs.22.76 lakhs). Both parties filed objections to the Award. The Court heard objections and delivered the impugned opinion dismissing the parties' objections and making the Award rule of the Court.
Legal Issues Presented
- What is the proper interpretation of Clause 41.8 of the contract (treatment of equivalent weld joints, the ±5%/+10% variation and the scope of "additional payment/recovery" under Item 2)?
- Whether the Arbitrator exceeded his jurisdiction or acted beyond the scope of reference (by commenting on technical drafting or on matters not referred to him), thereby rendering the Award invalid or self-contradictory.
- Whether the Award is self-contradictory (such that it must fail in its entirety) because the Arbitrator both rejected the claims of the petitioner and the respondent.
Arguments of the Parties
Petitioner's (Claimant's) Arguments
- The petitioner claimed entitlement to Rs.22,79,600 at the rate of Rs.100 per weld joint under Clause 41.8 because of a reduction of 22,796 weld joints from the contractual 59,360; the opinion records that the petitioner had executed 33,596 weld joints (paragraph 3).
- Implicit in the petitioner's claim was reliance on the clause's provision for payment at item 2 rates when variation exceeded the stated limits.
Respondent's (BHEL's) Arguments
- BHEL contended that the alleged amount was recoverable from the petitioner because fewer weld joints had been executed than stipulated in the contract (i.e., a counter-recovery claim).
- BHEL argued that Clause 41.8 applied to piping-system weld joints and that tonnage (rather than simple joint counts) was the relevant basis for valuing the work; the number of joints could vary with pipe lengths, but tonnage determined the true scope/cost.
- BHEL maintained that the Arbitrator exceeded his brief by commenting upon and criticizing the technical drafting of the clause, and that the Award was self-contradictory; it relied on the proposition that an arbitrator who assumes jurisdiction not conferred by the reference renders so much of the Award invalid.
- BHEL asserted that the Arbitrator's conclusion that tonnage could not be the payment basis would lead to recovery of Rs.22.76 lakhs (an amount they claimed), and that the Arbitrator's approach was therefore incorrect and inconsistent.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jivarajbhai Ujatnshi Sheth v. Chintamanrao Balaji, AIR 1965 SC 214 | The arbitrator's jurisdiction is confined by the terms of the reference; if an arbitrator assumes jurisdiction not conferred on him, the portions of the award beyond jurisdiction are invalid; if the invalid part cannot be severed, the whole award may fail. | The Court noted the respondent's reliance on this authority but held that, on the facts, the Arbitrator was an expert and acted within the scope of the reference. The Court concluded that the Arbitrator had not exceeded his jurisdiction nor rendered a severable invalid part; accordingly, the principle did not require setting aside the Award here. |
Court's Reasoning and Analysis
The Court set out the Arbitrator's approach and then explained why the Arbitrator's conclusions were permissible and not a ground for setting aside the Award.
Key steps in the Court's analysis (as stated in the opinion):
- The Arbitrator examined Clause 41.8 and observed the textual effect of the words "additional/recovery." He reasoned that a literal reading in the same order could lead to an interpretation whereby BHEL would always be entitled to recover from the contractor when fewer joints were executed even though the contractor might have incurred greater expense (manpower, cranes, labour) — an unreasonable result.
- The Arbitrator concluded that BHEL's specified number of weld joints for the job was "abnormally high" because, in practice, only 33,596 weld joints (as recorded in one part of the opinion) were needed to complete the systems acceptable to BHEL, indicating a technical lapse by BHEL in assessing joints.
- The Arbitrator performed a technical assessment of tonnage and value: weld joints under Clause 41.8 corresponded to an erection tonnage of 1,764 MT for two boilers, leading to a valuation showing the piping work to be of limited value (Rs.8.18 lakhs for piping work). He found it "highly illogical" to permit BHEL to recover Rs.22.76 lakhs on a job whose piping value was Rs.8.18 lakhs, and therefore rejected BHEL's plea for recovery.
- On the petitioner's claim for Rs.22,79,600, the Arbitrator allowed Rs.8.18 lakhs and rejected the counter-claim. Both parties objected to the Award.
- The Court evaluated the respondent's contention that the Award was self-contradictory or the Arbitrator had exceeded the reference. It observed that the Arbitrator was an expert in the field, and that as the interpreter of the clause he was permitted to examine the clause's technical viability and to give an interpretation informed by the technical context.
- The Court emphasized the limited judicial scope for interfering with arbitral awards: even if an erroneous view was taken, the Court should not interfere unless there is demonstrable perversity. The Court found no such perversity or excess of jurisdiction on the facts.
- The Court noted that the petitioner ultimately accepted the Award in its entirety, removing any residual grievance on that side; the respondent's technical explanation (that tonnage and joint counts both supported recovery of Rs.22.76 lakhs) was held to be irreconcilable and irrational in light of the Arbitrator's technical findings.
- The Court concluded that Clause 41.8 was interpreted by the Arbitrator in a balanced, intelligible manner and that the Arbitrator did not act beyond his remit. Consequently, the objections by both parties were dismissed.
Holding and Implications
Holding: Objections of both parties are dismissed; the Award is made Rule of the Court and the suit is decreed in terms of the Award with pendente lite and future interest at 15% until realization.
Immediate consequences and practical effect:
- The arbitral Award (as summarized in the opinion: payment to the petitioner of Rs.8.18 lakhs and rejection of BHEL's counter-claim of Rs.22.76 lakhs) stands and is enforced by the Court as a decree.
- Interest at 15% per annum is awarded pendente lite and for the future until full realization; the suit and interlocutory applications are disposed of.
The opinion does not indicate that the Court intended to lay down any new legal precedent beyond applying established principles limiting interference with arbitral awards; therefore the decision's stated implications are limited to enforcement of the Award and denial of the parties' objections.
Disposition (as recorded): Objections dismissed; Award made Rule of the Court; suit decreed in terms of the Award with interest @15% pendente lite and thereafter till realization; suit and I.A.s disposed.
J.D Kapoor, J.— Agreement between Bharat Heavy Engineering Ltd. (respondent) and M/s. Harji Engineering Works (claimant) was signed on 7th January, 1987 for erection, testing and commissioning of 67.5 MW Boiler Unit-I and 15 MW Electrostatic Precipitator at Rajghat Thermal Power Station, New Delhi.
2. The dispute arose between them as to the interpretation of Clause 41.8 of the contract. The Arbitrator was appointed for interpreting the said clause which provides as under:
“Clause 41.8
The actual number of joints given in Annexure-III are cover table in equivalent joints calculated on the basis of Annexure-IV chart enclosed. The equivalent joint so worked out may vary between -5% and +10%. However, the unit tonnage rate shall remain valid for the variations as stipulated above.
In case the variation exceeds the above limit for variations beyond -5% and +10% only the additional payment/recovery will be as per item 2 of rate schedule. There will be no other claim from either side.
Item 2 of rate schedule provides
‘Rate of welding of HP joints (in Rs.____per equivalent joint) including Radiography, Stress relieving/other tests, as per Clause No. 41.8 Rs. 125/- per joint revised to Rs. 100/- per joints during negotiation”
3. It was claimed by the petitioner that on account of reduction of 22,796 weld joints from original 59,360 weld joints stipulated in the contract, the petitioner was entitled to payment of Rs. 22,79,600/- at the rate of Rs. 100/- per joint in terms of Clause 41.8 of the contract. However there was no dispute that the weld joints executed by the plaintiff is 33,596.
4. What was disputed by the respondent was that the aforesaid amount was rather recoverable from the petitioner on account of lesser number of weld joints than were stipulated in the contract.
5. While interpreting the aforesaid clause, the Arbitrator pointed out that if the word Additional/Recovery is to be read in the same order in which it has been used, it will lead to interpretation that if the claimant had done less number of weld joints than provided in the contract, BHEL, the respondent would have been entitled for making recovery from the contracted amount, even though the claimant/petitioner has spent more money on man-power, labour, cranes etc. as mentioned in the analysis of rates in Annexure-E of the contract.
6. In the opinion of the Arbitrator, number of weld joints specified by BHEL for the job was abnormally high and the position is fully reflected in the fact that only 33,596 weld joints were needed to complete the systems in all respect acceptable to the BHEL. This is a technical lapse of gravest order on behalf of BHEL who are fully conversant with the type of the Thermal Plant required to be installed at Rajghat Power House. However the contention of the petitioner that the words ‘additional/recovery’ as provided in the Clause 41.8 are to be read in the same order whether the word “respectively” was there or was not accepted by the Arbitrator. And rightly so.
7. However, the technical lapse on behalf of the respondent occurring in the contract was demonstrated by the Arbitrator like this:
“My close scrutiny of the case reveals that weld joints under Clause 41.8 was covering an erection tonnage of 1764 MT (PPG 538 MT, PP 1226 MT) for two boilers. This means that total value of the piping work and that of piping should be Rs. 8.18 lakhs and Rs. 18.63 lakhs respectively. Dispute is mainly rather only in respect of weld joints pertaining to piping systems. This being the case—it is highly illogical to suggest a recovery of Rs. 22.76 lakhs on a job of Rs. 8.18 lakhs. This is unjustified and BHEL's plea for recovery as provided in the contract does not stand ground and hereby rejected.”
8. Against the claim of Rs. 22,79,600/- of the petitioner, the Arbitrator allowed Rs. 8.18 lakhs whereas rejected the counter-claim of Rs. 22.76 lakhs of the respondent. Both the parties felt aggrieved and filed objections.
9. Award has been challenged by the respondent firstly that the rejection of claim of both the parties is self-contradictory as the Arbitrator was either to reject the claim of petitioner or to allow the claim of the respondent; secondly the Arbitrator was required to only interpret the Clause 41.8 and not to find faults with it; thirdly, that the Arbitrator has exceeded his brief by giving an award wherein he has commented upon and discussed with those disputes which were neither referred to him nor were within his jurisdiction. The claims have been rejected on account of the contentious clause being a bad piece of drafting as to its technical aspect, lastly he has given his own opinion as to the correctness of the clause casting aspersions on the officials who had drafted this clause instead of giving meaning to it.
10. It is not in dispute that as per contract joints which were to be welded were 59,360 but in actuality 36,564 number of joints were welded. As per Clause 41.8 of the agreement, the equivalent joints as worked out may vary between (-)5% and (+)10%. It is contended by the learned Counsel for the respondent that in case the variation exceeded above these limits i.e variation beyond -5% and +10%, payment/recovery was to be made as per item 2 of the rate schedule i.e at the rate of Rs. 100/- per joint in terms of Clause 41.8
11. It is further contended that the provision of clause 41.8 only confined to the piping system joining the boilers and the number of weld joints in the piping system alone, aud therefore, number of joints were not the deciding criteria and what was relevant was the tonnage rate. In other words, if the BHEL had supplied the pipes of lesser length the number of joints had gone higher and if the pipes supplied were of longer length the number of joints had gone down but at the same time the contractor had to use the bigger cranes, more labour and output would have been lesser. The rate relating to the number of weld joints was made only to protect the interest of the contractor as the possibility of BHEL supplying the pipe line of much lesser length could not have been ruled out.
12. It is further contended that the finding of the Arbitrator that if the tonnage is not the basis for the payment of work done then defendant would be entitled to recover Rs. 22,79,600/- from the contractor is irreconcilable. The provisions of +10% was only to cover the risk of the contractor as in that case over and above the rate for the tonnage, the contractor was also to recover at the rate of Rs. 100/- per weld joint. Similarly the contractor was also entitled to receive additional payment if the weld joints had exceeded +10% at the rate of Rs. 100/- per joint and at the same time was also entitled to receive payment of tonnage if the weld joints were less than (−)5%.
13. According to the learned Counsel, every aspect was taken into consideration while fixing the rate of tonnage as every time the rates were to be changed with the change in piping structure and that was why the tonnage rate was fixed and at the same time the number of weld joints were also kept in mind while assessing the value of the work done by the contractor.
14. In support of the plea that the award is self-contradictory as the Arbitrator found it difficult to sever such invalid part from the other part of the award, and therefore, the award must fail in its entirety, learned Counsel relied upon jivarajbhai Ujatnshi Sheth v. Chintamanrao Balaji, AIR 1965 SC 214. In this case a dispute arose out of a partnership business and the Arbitrator was required to make the valuation of the firm. It was held that jurisdiction of the Arbitrator is restricted in the manner provided by the partnership agreement. If the interpretation of the deed of partnership lies with the Arbitrator, then there is no question of sitting in appeal over his interpretation but if the parties set limits to action by the Arbitrator, then the Arbitrator has to follow the limits set for him and the Court can find that he has exceeded his jurisdiction on proof of such action. It was further held that the assumption of jurisdiction not possessed by the Arbitrator renders the award to the extent to which it is beyond the Arbitrator's jurisdiction, invalid. And if it is not possible to sever such invalid part from the other part of the award, the award must fail in its entirety.
15. In the instant case, the Arbitrator was an expert in the said field and was holding a very high position in the respondent's company and as such was given the task of interpreting the clause in question.
16. As an interpreter of the clause, he was free to deal with it in the manner he has dealt with. In his opinion recovery of Rs. 22.76 lacs by the respondent for the job of Rs. 8.18 lakhs is highly illogical but this is the result of the unintelligible clause as according to the Arbitrator the weld joints tinder this clause covered an erection tonnage of 1,764 MT for two boilers which means that the total value of the piping work and that of piping was Rs. 8.18 lakhs and Rs. 18.63 lakhs respectively whereas total job was of Rs. 8.18 1acs. The dispute is mainly inrespect of weld joints pertaining to the piping system. Arbitrator further observed that this clause is bad on factual matrix also as the number of weld joints assessed by the BHEL for the contracted job was abnormally high as only 33,596 weld joints were needed to complete the system in all respect which was acceptable to BHEL.
17. Merely because the Arbitrator has rejected the claim of the petitioner as well as counter-claim of the respondent does not mean that the award is bad and is liable to be set aside. Rather it reflects the application of mind of the Arbitrator in interpreting the Clause 41.8 of the agreement in rational and reasonable manner. Had the task of Arbitrator been only to interpret the clause and stop there, there was no question for the petitioner to file its claim as well for the respondent to file counter-claim.
18. Since both the parties interpreted the clause to their advantage, role of the Arbitrator was of decisive nature. Therefore, neither the finding of the Arbitrator is beyond the scope of reference nor has the Arbitrator exceeded the jurisdiction nor has he interpreted the clause in the manner that may demonstrate perversity.
19. However the petitioner has fairly conceded at the end of the day that he has no more any quarrel with the award and accept the same in its entirety. As regards the interpretation provided by the respondent that the tonnage as well as the number of weld joints were the criteria and since number of weld joints is considerably low-so it is entitled to recover Rs. 22.76 lacs against the job of Rs. 8.18 lacs awarded to the contractor, it is completely irreconcilable, irrational and inaccurate.
20. As a matter of fact provision of (+)10% was only to cover the risk of the contractor as in that case over and above the rate for the tonnage the contractor was also entitled to recover at the rate of Rs. 100/- per weld joint if the weld joints exceeded (+)10% and at the same time was also entitled to receive payment at the tonnage rate if the weld joints were less than (−)5%. Thus, clause in question was interpreted in a most intelligible and balanced manner.
21. Jurisdiction of the Court is extremely limited in dealing with the award. Even if erroneous view has been taken while interpreting the question of law or while construing the clause of the contract and even if two views are possible the award should not be interfered with unless perversity is writ large on the fact of it.
22. In the result, objections of both the parties are dismissed being devoid of merit. Award is made Rule of the Court and suit is decreed in terms of the award with pendente lite and future interest @ 15% till realization.
23. Suit and I.As stand disposed of.
Suit and I.A disposed of.
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